Pfaff v. United States

For Movant Robert Pfaff: Robert Daniel Freisner, LAW OFFICES OF DANNY FREISNER.

Margaret Garnett, Assistant United State Attorney, Preet Bharara, UNITED STATES ATTORNEY.

OPINION

Page 303

MEMORANDUM OPINION

Lewis A. Kaplan, United States District Judge.

Robert Pfaff was convicted of twelve counts of tax evasion after a ten-week jury trial in what was commonly known as the KPMG tax shelter case. He was sentenced principally to 97 months imprisonment. The Second Circuit on August 27, 2010 affirmed his convictions.[1] He is serving his sentence.

Pfaff now moves to vacate, set aside, or correct his sentence under 28 U.S.C. § 2255 based on purportedly new information concerning David Amir Makov (" Makov" ), a co-defendant and, ultimately, cooperating witness for the government. Makov's testimony appears to have played an important role in Pfaff's and John Larson's[2] convictions.

Background

Pfaff, Makov, and Larson at one time were partners in a tax shelter boutique called Presidio Advisors. Presidio was in the business of creating transactions that appeared to be legitimate, but were in fact unlawful devices designed to generate tax deductions. Pfaff, Makov, Larson, and sixteen others were indicted. The superseding indictment on which Pfaff and Larson were tried charges that the defendants conspired to create and implement four different fraudulent tax shelter vehicles -- Foreign Leveraged Investment Program, Offshore Portfolio Investment Strategy, Bond Linked Issue Premium Structure, and Short Option Strategy -- in

Nearly two years after the superseding indictment was returned, Makov entered into a cooperation agreement with the government. Pursuant to that agreement, he pled guilty to one count of conspiracy to defraud the United States and agreed to forfeit $10 million out of the $17 million that he allegedly had amassed through the tax shelter conspiracy.[3] At the plea hearing, the government explained that, although the forfeiture amount was less than all of the proceeds, Makov had represented to it that $10 million " [wa]s substantially more than the assets that Mr. Makov [then] possesse[d]." [4]

Makov was a significant government witness at Pfaff's trial. Most relevant here, he testified that the plea agreement required him " to pay $10 million to the U.S. government, also restate [his] tax returns for the years 2000 through 2002 . . . . And forfeit a bunch of other assets to secure that $10 million." [5] When asked whether he had given the government all of his assets, he responded " [a]ll of my -- all of my assets and any assets that are in trusts that I'm either beneficiary to or have any, you know, control over. I've handed it over to the government as collateral against my financial obligation to pay -- make good on the conditions of the plea agreement." [6]

In Pfaff's opening brief on his Section 2255 motion, he argued that Makov secreted $4.8 million of his ill-gotten gains with his father, Mosho Makov, in 2002 and an additional $1 million in 2005.[7] He claimed that the government had been aware of these transactions and that Makov retained an interest in those funds when he entered into his plea agreement in 2007, yet failed to forfeit the $5.8 million. From this, he contended first that the government committed prosecutorial misconduct by allowing Makov to perjure himself when he testified that he had forfeited all of his assets to the government and, second, that its failure to turn over Makov's 2002 amended tax returns violated its obligation to disclose material impeachment evidence under Giglio v. United States .[8] Pfaff acknowledged, however, that he was aware of the $4.8 million transfer to Mosho Makov in advance of trial.[9] Finally, he argued that his trial and appellate counsel were ineffective and that he actually is innocent on certain counts.

The government responded that Pfaff procedurally defaulted on his prosecutorial misconduct/ Giglio claims because he could have raised them at trial or on direct appeal. It submitted a declaration that stated that after Makov transferred the $4.8 million to his father, Mosho Makov placed the funds into the Palm Court Trust, the trustee of which was Rothschild Trust Guernsey.[10] The declaration stated that Makov " was neither the settler [ sic ]

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(or grantor) of the trust, nor its beneficiary, and had no ownership interest in the funds." [11] It further stated, however, that Mosho Makov unwound the trust in 2006 and gave Makov " the bulk of the balance," most of which was used to pay his legal fees.[12] The remainder was placed in Makov's Rothschild bank account, the existence and balance of which both had been disclosed to the defense before trial.[13] The declaration stated that the Assistant United States Attorneys prosecuting the case recalled that they had been satisfied after several proffer sessions with Makov that they " understood both the disposition of the approximately $17 million in fees that Makov had earned from Presidio and the nature and extent of his assets in 2007." [14] It further stated that Makov filed amended tax returns for the years 2000 and 2002.[15]

In response to the government's submission, Pfaff abandoned all of his Section 2255 claims with the exception of the questions " (a) whether the Government violated its obligations under Giglio v. United States, 405 U.S. 150, 92 S.Ct. 763, 31 L.Ed.2d 104 (1972); and (b) whether the Government's conduct in the case 'shocks the conscience' in the constitutional sense." [16] He concluded or assumed from the government's declaration that the transfer to Mosho Makov had been a gift by Makov. On that premise, he argued that Makov evaded the gift tax and did not file a gift tax return in violation of 26 U.S.C. § § 7201 and 7203. To the extent that there was not a completed gift, he argues that Makov retained an interest in the Palm Court Trust and should have reported income from that foreign trust on his amended 2002 income tax returns and made related disclosures. The government, he asserts, therefore had been required to disclose this supposed ongoing tax fraud and the amended 2002 returns under Giglio .

At the Court's request,[17] the government filed a sur-reply[18] with a second declaration.[19] This second declaration elaborates that Makov disclosed to the government in August 2007 that the 2002 $4.8 million transfer to his father had been a loan.[20] Upon repayment in 2006, Makov recorded $107,000 in interest on his income tax returns.[21] The declaration stated that recent discussions with Makov's counsel had revealed that Mosho Makov settled the Palm Court Trust, which had named " charitable beneficiaries," in February 2001.[22] Mosho Makov had provided the trustee with a non-binding " letter of wishes" that asked Rothschild to take into account Makov's wishes as to the trust's eventual beneficiaries. In December 2001, Makov provided his own " letter of wishes," which requested that the trustees " consider in their discretion" using any funds left in the trust for

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his children's benefit in the event of ...

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